CBK leaves benchmark rate at 9 percent as economy holds steady

The Central Bank of Kenya (CBK) has retained its lending rate to commercial banks for the eighth consecutive time to reflect on the stability of the country’s economy.

The reserve bank which held its Monetary Policy Committee (MPC) meeting on Wednesday attributed the hold of interest rates to contained inflation and optimism for economic growth.

“The MPC Private Sector Market Perception Survey indicates that inflation expectations remain well anchored mainly due to expectations of lower food prices following improved weather conditions,” read the statement from CBK.

“The survey also shows increased optimism that growth will remain strong in 2019 due to among other factors, the continuing payments of pending bills and public investments.”

Inflation, has, since the last MPC meet held steady and within the government targeted range of 2.5 to 7.5 percent in the shadows of rising food and fuel costs.

June inflation was however up by 0.2 points to 5.7 percent as the delayed onset of the long rains season continued to affect the pricing of essential commodities to include sifted maize flour and petrol.

Growth in private sector credit has however propped up optimistic for an increased economic output having grown to 5.2 percent in June from a low 4.4 percent in May.

Further, foreign exchange market (FX) has held steady with the current account balance as a share of GDP falling to 4.2 percent over 12 months to June 2019 from a higher 4.4 percent in May.

At the same time, remittances have been at their highest having risen by Ksh.30.6 billion ($295 million) in June to take cumulative 12-month flow to Ksh.287 billion ($2.8 billion).

With a strengthened current account and strong FX growth, the CBK usable foreign exchange reserves have held steady at Ksh.1 trillion ($9.7 billion) or an equivalent 6.2 month import cover for the economy.

The strong payments account is despite a substantive bond repayment at the end of June as the government offset Ksh.22.5 billion in interest payments to the Ksh.76.4 billion Eurobond tranche which matured on June 24, 2019.

In spite of the sound economic position, the depreciation of the Kenyan shilling in recent weeks remains a key concern for the CBK.

The Kenyan shilling closed trading on Tuesday at Ksh.103.76 against the US dollar from a relatively strengthened position of Ksh.103.61 on Monday.

The weakening shilling has been attributed to increased liquidity in the finance market and increased demand for the dollar by traders even as the effects of the recently declared demonetization of the old series Ksh.1000 notes filters through the economy.

Volatility in the global market fueled mainly by anxiety over the output of crude from the oil rich Gulf further provides for pressure points to both the shilling’s valuation and the projection on economic growth.

“There is need to be vigilant on the possible effects of the recent increases in fuel prices, the ongoing demonetization, and the increased uncertainties in the external environment,” added the CBK.